More upheaval seen in Japan's retail sector

Japan's refined products retail marketing sector continues to undergo massive upheaval.

Severe price competition is likely to force the closure of about 40% of Japan's service stations during the next 5 years, according to a recent study by Esso Sekiyu.

Meanwhile, the government's ban on self-serve gasoline outlets in Japan is slated to be lifted as early as next spring, Ministry of International Trade and Industry sources said.

And in a bid to boost profitability of its service stations, Nippon Oil Co. will open a large-scale shop in Tokyo by next May to sell automotive equipment, emulating the kind of integrated franchise seen in western petroleum retail outlets.

Closures

Esso Sekiyu, the Tokyo-based affiliate of Exxon Corp., said that about 75% of the 38,000 service stations surveyed in 28 prefectures will probably fall into the red, given current gasoline prices.

The average price of gasoline in Japan is currently 102 yen/l., according to the latest monthly report by the Oil Information Service Center. This means that service stations are, on average, currently incurring losses on gasoline sales of 1 yen/l., Esso Sekiyu said.

Moreover, price wars are likely to continue, with large service stations-around 15% of the total number-having room to drop gasoline prices to a little more than 90 yen/l., the report added.

But it also said that prices are likely to stabilize when about one third of the current service stations have disappeared, because surviving stations will enjoy greater profitability and absorb rising demand.

Esso predicts that total sales of gasoline and gas oil per service station will more than double in the next 5 years to 350 kl./month.

Self-serve allowed

While existing service stations in Japan close by the thousands, the new self-serve outlets are expected to proliferate quickly.

The move is expected to reduce the price of gasoline about 10% and stimulate the flagging economy by spending an estimated 1 trillion yen to set up the outlets. MITI plans to incorporate the proposal into the government's economic structural reform package to be drawn up by yearend.

The personnel cuts resulting from the deregulation measure are expected to spur lower retail prices of regular unleaded gas-which averaged 101 yen/l. nationwide in September-to about 90 yen/l.

Supermarket outlets in the suburbs are also expected to operate self-serve outlets. MITI estimates that such outlets will total about 10% of the 57,000 filling stations the first year. Self-serve outlets account for 90% of all retail gasoline outlets in the U.S. and more than 70% in the U.K.

Auto shop

Nippon Oil's new auto shop, which will also offer safety check and tune-up services, is to be the first of about 50 such outlets the petroleum giant plans to set up nationwide within 5 years.

This move marks the first time an oil distributor establishes a chain of automobile goods shops in Japan. Nippon Oil will establish a management company in November with capital of 100 million yen, taking an 80% share. The remainder will be sold to two auto parts distributors and a manufacturer of tune-up equipment.

The first shop will be built on a 10,000 sq m site with floor space of 1,000 sq m. It will have 44 service bays and 250 parking spaces. Investment in plant and equipment is estimated at 500 million yen. Nippon Oil expects the shop to generate 3 billion yen in annual sales within 3 years.